ARTICLE
17 August 2015

Priority Status Given To Claims Of Landlords Against Involuntary Debtors

PF
Pierson Ferdinand LLP

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On August 11, 2015, the Bankruptcy Court for the Northern District of California ruled on an issue "of apparent first impression" that claims for unpaid rent brought by landlords for office space leased to the former law firm of Howrey LLP should be given priority status under the Bankruptcy Code.
United States Insolvency/Bankruptcy/Re-Structuring

On August 11, 2015, the Bankruptcy Court for the Northern District of California ruled on an issue "of apparent first impression" that claims for unpaid rent brought by landlords for office space leased to the former law firm of Howrey LLP should be given priority status under the Bankruptcy Code. The case is styled as In re Howrey LLP, C.A. No. 11-31376 (Bankr. N.D. Ca. Aug. 11, 2015), and is an important read for all landlords providing ongoing services to involuntary debtors.

The Court found that consistent with Congress's intent to protect parties that deal with involuntary creditors, priority status must be provided to so-called "gap claims".

The Court also rejected the arguments of the Creditors Committee, which opposed priority status, ruling that "[g]ap priority provides an inducement and a protection for parties who deal with involuntary debtors[]", and that "there is no hint that Congress meant to exclude landlords (or others who have ongoing contractual relationships with debtors when involuntary petitions in bankruptcy are filed against them)."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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